And it turned out that that cost was something that would give the illusion of security, and hide away the technical minutiae that would prevent the system from sucking in those non-technical users.
The bitcoin and other crypto communities don't get to have it both ways. You can't pull in average folks with these mechanisms, to increase the value of your holdings, while simultaneously admonishing them for using and trusting the systems set up to bring them into the fold.
But let's take the cynical viewpoint. If I, as a hypothetical Bitcoin holder, want the dollar value of my Bitcoin to go and stay up, then the last outcome I desire is for massive volumes of Bitcoin to end up centralized into a few pockets where they will be gambled on and sold when those bets fail. The most cynical Bitcoin holder has it in their interest for all retail holders to custody their own supply.
Considering the educated base of Bitcoiners have been screaming and citing examples of what happened with FTX since the protocol's inception, "Not your keys, not your coins," it's rather dubious to try and blame them. The reason people get into the space and trust their coins to some third party is that those people are chasing the end of a market cycle and never even come across or seek out the wisdom of the people that were they in the beginning.
'Bitcoiners' at large, judging by the on chain metrics for holders through negative price action, would much rather the volatile market cycles played out as a smoothed average with each new user coming in educated rather than speculators rushing in at the end by any means necessary.
Without the exchanges, the USD->cryptocurrency onramp/offramp is a lot more difficult to do, I don't think most people want to only shop at places that do actual on-chain settlement.
I predict we will continue to see large numbers of scams involving cryptocurrency as long as there are essentially unregulated banks and investment firms. Expecting lots of people to be sufficiently interested and educated enough to only use 'cold wallets' or use good secops on their systems is a bit too hopeful. Even after reading about it for years, the overhead of using cryptocurrency vs a debit or credit card just doesn't seem worth it to me, and I have a tech background.
Why would any non-techie ever want to deal with safely storing keys to a wallet. Or without having access to a trusted third party to help when issues arise.
This is such a non-starter and one of the many reasons why there will NEVER EVER be mass adoption of Bitcoin outside of speculation.
Just because an unholy alliance of utopian nerds and fraudsters wish this to be true doesn't make it happen.
But, taking your point and rolling with it, there is nothing necessarily wrong or futile about using a properly set up and insured bank with crypto if the hardware wallet is still too intimidating. It could even be set up with certain multi-sig schemes such that a fourth party + the client could withdraw without the bank's permission.
The point is that even when custodied, Bitcoin has arguable benefits over normal currency. I'm sure you will disagree with those benefits, but at this point that would be a Red Herring.
With fiat currency, you have to physically store the cash in 1 location. With crypto I can store multiple keys to my crypto on physical devices that require a pin to unlock (and reset after a few failed attempts). I can store my key across multiple locations in such a way that n of m copies of the key are required to move funds. I can require a waiting period before moving funds. I can require another person to approve the transactions in certain scenarios (ex: moving large amounts of funds).
People won't run their own mail exchange, because it's too much work and too complicated.
People won't run their own blog, because it's too much work and too complicated.
The downside to doing either of these things poorly is that you can't send email / become a spam email relay / get hacked and lose your blog content.
Now tell those people that they can take on all the downside risk of losing all their money and the only thing they have to do to make sure that doesn't happen is practice perfect operational security, perfect transaction discipline, stay up to date on all known exploits and patches, constantly be on guard for irreversible scams and exploits, and the big benefit is, "you don't have to trust the bank."
Some huge percent of those people are going to look at you like you are crazy. Do all this work, take on this massive risk, and for what, a problem that most people in the western world have never faced. Most people have not faced any issue with transacting with the traditional finance system, definitely not enough to take on all the labor and risk of being their own bank.
If people won't run their own email, they aren't going to run their own financial institution.
No one thinks it's a good idea to be your own bank. No one thinks they need to make their own shoes cars food computers hand tools ... the list is an enumeration of all the artifacts of civilization.
crypto is an anti-social fantasy at best, it flies in the face of reality.
You've already lost most users. My parents call me weekly because I'm their password manager. They're not the only ones.
If you lose your device (which should NEVER happen, it's a safe, not a purse), your keys are still encrypted with your PIN code and the device will self erase after 3 unsuccessful attempts.
You can retrieve your private key from a 24 word sequence (seed key), which you will usually store on a fire proof and water proof medium like a like a billfodl or stamped washers. For added security, the private key will be derived from the seed plus an additional passphrase only known to you (kind of like a salt), so your key doesn't get compromised if someone gets his hands on your seed.
Cold wallets didn't exist by the time of the incident you mention.
https://steemit.com/cryptocurrency/@angelol/cryptocurrency-h...
But yeah, this whole debacle with FTX has finally made me realize that if I were to ever keep meaningful quantities of crypto, I would need to do so in a cold wallet.